ECON 367 Lecture Notes - Lecture 9: Coase Theorem, Pareto Efficiency, International Trade
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Tutorial 3: sample questions on the coase theorem. Q - explain briefly, in your own words, what it means to say that a change is an economic improvement--i. e. leads to increased surplus. Give two examples of ways in which a change might be an economic improvement and yet be regarded by many people as undesirable. Answer: change is an economic improvement because, as technology improves, we can become more productively efficient etc. etc. Example 1. international trade = not pareto, some people end up worse off. Efficiency vs equity (take 1$ from poor person and give it to successful rich investor, not fair!) Subjective view of goods, some may find certain goods distasteful (i. e. heroin has more value to some than sandwiches so replacing those sandwiches with heroin would theoretically grow the economy, but seems distasteful) Q - your law partner asks you what you are doing. You reply that you are trying to draft an efficient contract.
